What Counts as Consideration in Contract

When two parties enter into a contract, there must be an exchange of something of value, which is known as consideration. In contract law, consideration is the bargain for exchange that takes place between two parties. It is what each party gives up in return for the other`s promise. Without consideration, a contract would be unenforceable.

Consideration can take various forms. It may be a payment, a promise to pay, or a performance of an act that one has not already obligated oneself to perform. The following factors are considered when determining what counts as consideration in a contract:

1. Valuable consideration: Consideration must possess some value that is recognized by law. It can be a monetary payment, a performance of an act, or a promise to perform an act.

2. Adequacy of consideration: While there is no requirement for the adequacy of consideration, it is necessary that the consideration be sufficient enough to support the promise or obligation. For example, a promise to pay a nominal amount for a valuable item would be considered inadequate consideration.

3. Mutuality of consideration: Both parties to a contract must provide something of value to each other in order for their contract to be legally binding. If only one party is providing consideration, then there is no mutual agreement and hence no contract.

4. Past consideration: Past consideration is not considered valid consideration as it does not involve a promise to do something in the future. For example, a promise to pay for a service that has already been provided is not valid consideration.

5. Illusory consideration: Illusory consideration is not considered valid as it lacks a true exchange of goods or services. For example, a promise that is conditional on the sole discretion of one party is not considered valid consideration.

In conclusion, consideration is the cornerstone of contract law. It is essential that both parties provide something of value to each other for a contract to be legally binding. It is important to consider the various factors that determine what counts as consideration while entering into a contract to ensure that the agreement is enforceable.